The development comes against the backdrop of evolving geopolitical and national security concerns in terms of importing sensitive telecom infrastructure from foreign companies, including those from China.
Expectations of upcoming demand for localized equipment from defence clients and allied applications has got telecom infrastructure manufacturers to build intellectual properties (IPs) and pursue defence contracts upward of ₹1,000 crore ($120 million) annually, according to senior executives of telecom infrastructure manufacturers who spoke anonymously.
Two of these executives alluded to plans to scale defence businesses to upward of ₹3,000 crore “within the next two years, as indigenization leads to the development of cutting-edge and sophisticated telecom equipment from within India itself”.
“We’ve built crucial network infrastructure, including complex technologies, which we did not need to source from any other geography in the world,” said N. Ganapathy Subramaniam, chairman of Tata Group-owned Tejas Networks.
He cited an example where the company has built an integrated single-tower structure approach for its network instead of two separate towers for consumers and enterprises. “This is helping us do away with the need to duplicate infrastructure for telecom operators, reducing capital expenditure (for those deploying the infrastructure),” Subramaniam said.
Industry stakeholders Mint spoke to said that companies like Tejas Networks, HFCL Ltd and Sterlite Technologies Ltd (STL) stand to reap the rewards of the Indian defence forces’ increasing preference for locally developed telecom infrastructure. Software giants such as Tata Consultancy Services Ltd are also expected to benefit.
Companies such as China’s Huawei Technologies Co. Ltd and ZTE Corp., Finland’s Nokia, Japan’s NEC Corp., and Sweden’s Ericsson have been the key telecom equipment suppliers to India. But over the past five years, US allegations of corporate espionage against Huawei and India’s border conflicts with China have proved to be key catalysts for Indian companies to turn to locally developed communications technologies.
What’s contributing to the trend
There are some other factors at play, too, that are moving the needle towards India. To be sure, for many firms, the US and India are among the top two markets for defence communications contracts, according to statements by HFCL and Sterlite in their latest quarterly earnings. An India play, therefore, is natural for companies.
Refusal to grant certain sensitive technologies to Indian forces by foreign providers has also contributed to the trend.
A senior executive with direct knowledge of the development underlined that until as recently as the past five years, “India was unable to procure fibre optic perimeter sensing technologies from the likes of NEC, which cited national interests not to sell the technology commercially.” An email query sent on Thursday to NEC was unanswered till press time.
This technology has now been developed by STL, among others. Ankit Agarwal, the company’s managing director said it is currently in talks for trial runs of its fibre optic perimeter intrusion detection system.
“We’re deploying artificial intelligence (AI) and machine learning (ML) algorithms to ensure that we don’t have false signals and have the right data that can be acted upon,” Agarwal said. “It is a ‘made in India’ solution that we’re trying to build and deploy at lesser price points than global counterparts.”
New technologies
Prashant Kumar Singhal, telecommunications leader at consultancy firm EY India, added that new technologies have also been an impetus for indigenous defence contracts.
“Indigenous infrastructure for telecom in defence forces would be going through a natural upgrade cycle, causing companies to get fresh business to cater to,” Singhal said, adding that most of these contracts are three- to five-year ones, and would cater to new technologies that come into the fray.
“In overall terms, the defence sector is likely to account for around 10% of the telecom infrastructure spending within the next three to five years, giving companies a finite business pool to seek out,” he said. Currently, the defence sector’s contribution to India’s telecom infra spend is negligible.
HFCL’s managing director Mahendra Nahata confirmed to Mint that defence contracts “are a major part of the company’s revenue, and there is a dedicated R&D team working in partnership with India’s defence forces to build and deploy indigenized telecom infrastructure”.
HFCL, a listed company, does not disclose specific defence contract revenues. However, during its Q2FY25 earnings call, Nahata had said that the contribution of defence contracts to its net revenue can go up to 33-50%, depending on business cycles. For perspective, HFCL reported consolidated revenues of ₹4,465 crore in FY24.
The country’s high import bill for telecom equipment is another reason for the push towards local telecom infra manufacturers.
Tejas’ Subramaniam said telecommunications applications “is now a horizontal service that is ubiquitously used across industries, be it finance or others. With such a massive application base, the import bill that a country incurs on telecom equipment runs into hundreds of billions of dollars”.
That, plus cybersecurity, privacy, and data localization, are key, too. “We’re investing heavily in R&D to ensure that our products are competitive in features against global majors. If we can get close to that, the remaining aspects of scale and margins can be worked out,” said Subramaniam.
New opportunity
Defence communications infrastructure is a crucial emerging line of business for domestic manufacturers of telecom equipment. On 21 October, HFCL’s Nahata projected that in 10 years, defence contracts would offer a business opportunity of $138 billion ( ₹11.7 trillion) globally.
Agarwal, too, noted during STL’s 5 November analyst call on the September quarter earnings that as per global consumption estimates “the medium-term demand [from defence agencies across nations] for optical fibre volumes is to go up steadily to 652 million fibre kilometres by 2028″. This represents a strong 7% annual demand growth for optic fibres, excluding China, he added.
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